The Best Times to Trade

Veteran trader Linda Raschke has done extensive work looking at what times of the day are the best to trade and she reveals the key times for some of the major markets.

My guest today is Linda Raschke, and we’re talking to her today about time-of-day analysis and what her research has shown about different times of day and what’s going on with the markets. Linda, what has your research shown about time-of-day analysis? What can it tell you about when to trade and when not to trade?

It’s funny because there’s little subtle shifts in the time-of-day functions over the years. For example, when I was on the trading floor people are very much creatures of habit, if you will. Pretty much the opening bell would happen, then we would know that 12 Eastern Standard Time, half of the pit traders would go to lunch. At 12:30 pm, the other half would go to lunch. At 1:30 pm, everybody is back in the pits and boom, the action will be getting going again. The last hours we come to the day, the funds start to place their orders to initiate new positions and so forth. We can see the order imbalances on the stock exchanges. Very much we’re governed by the clock. Here is something interesting that you can look at actually.

I don’t know if it’s as pertinent today as it used to be, but you can see that pretty much during the trading day the market would have two to three good tradable swings; two hours in one direction, two hours in another direction, two or three hours in the last direction. We’d mark these little time-of-day functions, and you can see that almost always the market swing would have on the half hour or the hour that you would have a turning point. I don’t know why that it is; it’s that people are watching the clocks one way or the other. Now with that, of course it’s been subtle changes in the time-of-day functions.

Probably most notable is that we have 24-hour trading days now. When we did our research, we broke the 24-hour day session into four main segments: Asia opening, Europe opening, US opening, and then when Europe closes, the afternoon session for the US, which actually most of the time is fairly dull because the rest of the world has gone home. You’ll find that on these session openings if you will, that pretty much that’s going to mark the swing up or down for the next four hours. You have new market participants coming in.

For us in our own research, I use a 7 am Central Standard Time reading to start the start off the US session day. That’s earlier than the New York Stock Exchange opens, but it’s very critical time if you’re trading currencies, gold, crude oil. With that said, each of these markets does have some of their own time-of-day functions. Obviously you have economic numbers that come out that are a big driver in the credit markets. You have things like then when the US market opens, you often have a very sweet spot there with those first two or three hours of data. I’m sure everybody is aware that’s the choice time of the morning trend. Usually that trend will come to an end about 30 minutes before Europe closes. Everybody is going to flatten out their positions that will often mark the extreme of the day in a lot of markets.

Then you’ll enter into some afternoon rotation period. We looked at the times of day that highs or lows were made for the day and when you split it up in these sections, you can actually see that very often for the afternoon session, the high or low for the afternoon session came around noon time. What does that tell you as a trader? It tells you it’s okay if you caught a good ride in the morning session, take your profits and call it a day because then you’ll start to get rotation that marked the end of the session.

Some very interesting things. Crude oil has its own personality, the largest 30-minute bar in the crude oil and the natural gas market, in terms of range come, from 1:00 pm to 1:30 pm in the afternoon. That tells you that if the rest of the markets have closed and all the action is over and you’re a little short-term scalper or you’re just looking for where the action is going to be, look in the energy markets there right at that timeframe; that’s 1:00 pm to 1:30 pm Central Standard Time. Very interesting work and research in this area.

I’m sure that the most important thing for you is if you’re a trader, write down the times of days that you see key highs and lows being made, and you’ll start to notice these four or five distinct patterns that unfold day after day.

Make sure you’re on the right side of it each time.

Well, at least you know what it does is it’s very difficult for a person to be from full concentration eight hours a day, day after day. If we can make certain time-of-day functions, it adds a little bit organizational structure so that I can be, okay, now we’re starting to approach 11 am, let me be on alert and look for A, B, C. It helps break it up like that.